Wednesday, February 28, 2024

A Saudi company took as much water as it wanted during Arizona drought

Lax rules let the foreign-owned company pump water from state land to grow alfalfa for the kingdom’s cattle. After almost a decade, the deal is in jeopardy.

Water pumped from deep underground helps alfalfa grow at the Saudi-owned Fondomonte farm in the Butler Valley, in western Arizona. (Video: Erin Patrick O’Connor/The Washington Post)

BUTLER VALLEY, Ariz. — A megadrought has seared Arizona, stressing its rivers and reservoirs and reducing water to a trickle in the homes of farmworkers near this desert valley.

But green fields of alfalfa stretch across thousands of acres of the desert land, shimmering in the burning sunlight. Wells draw water from deep underground, turning the parched earth into verdant farmland.

For nearly a decade, the state of Arizona has leased this rural terrain west of Phoenix to a Saudi-owned company, allowing it to pump all the water it needs to grow the alfalfa hay — a crop it exports to feed the kingdom’s dairy cows. And, for years, the state did not know how much water the company was consuming.

The lack of information was a choice.

Soon after the company, Fondomonte Arizona, arrived in the Butler Valley in 2015, state planners suggested asking the company to install meters and report its water use, according to a memo reviewed by The Washington Post. That way, the memo argued, the state could “at least obtain accurate information” on water drained from the valley — water that could otherwise serve as backup for booming urban areas.

But the proposal “hit a stone wall,” John Schneeman, one of the planners, told The Post. It was spurned, he said, by officials in the administration of then-Gov. Doug Ducey (R) who were “cautious of tangling with a powerful company.” The proposal also ran headlong into a view, deeply held in the rural West, that water is private property that comes with access to land, rather than a public resource.

The inaction was an early sign of how state officials gave leeway to Fondomonte as a global fight for water took root in the Arizona desert. Leaving water unprotected amid a drought worsened by climate change has been a boon to Saudi Arabia, where industrial-scale farming of forage crops such as alfalfa is banned to conserve the Persian Gulf nation’s limited water supply.

A Post investigation — based on government documents and interviews with public officials, ranchers in the valley, farmworkers, and townspeople who live near the alfalfa fields — found that Arizona’s lax regulatory environment and sophisticated lobbying by the Saudi-owned company allowed a scarce American resource to flow unchecked to a foreign corporation. To advance its interests before the state, Fondomonte hired an influential Republican lawyer as well as a former member of Congress. And it sought to win over its rural neighbors, providing a high school with donations that included Fondomonte-sponsored sports bags and face masks emblazoned with the company logo to protect students from covid.


Fondomonte’s farm in the Butler Valley uses water otherwise designated for possible transport to the state’s population

centers

HANNA ZAKHARENKO/THE WASHINGTON POST

Fondomonte’s farm in the Butler Valley uses water otherwise designated for possible transport to the state’s population centers

HANNA ZAKHARENKO/THE WASHINGTON POST

David Kelly, Fondomonte’s general manager, said the company follows the same rules that govern farming operations throughout the state while going out of its way to save water and serve the community.

“All we ask is to be measured according to the same standards as every other farming leaseholder on state land,” he said in an email. “Fondomonte has developed Butler Valley to be one of the most efficient and highly productive farms in not only Arizona, but the entire Southwest. Our Butler Valley operation utilizes best-in-class irrigation technology and equipment with the oversight and diligence of an experienced management team.”

Fondomonte, he said, “should be heralded for its water efficiency.”

(Video: Erin Patrick O’Connor/The Washington Post)

State officials now acknowledge that decades of farming and explosive growth have dangerously diminished Arizona’s water reserves. The rising scarcity has deepened rifts between urban and rural communities and turned Fondomonte into a political flash point. The company is hardly alone in using state-owned land to irrigate crops: Fondomonte holds four of the roughly 20 state agricultural leases across Arizona’s three major transport basins, where state law allows transfer of water to cities. But its foreign ownership and strict limits on water use in its home country have fueled outrage here.

Last month, the new governor, Democrat Katie Hobbs, unveiled a long-awaited study showing that groundwater in parts of the Phoenix area was insufficient to meet projected demand over the next century. Her administration also recently sought details about water use on state-owned land. Only after the state threatened to cancel Fondomonte’s leases last month did the company disclose how much it pumps annually in the Butler Valley, according to communications released as part of a public-records request. Its consumption is equivalent to that of a city of more than 50,000 people, experts said.

The governor’s aides are now preparing plans not to renew Fondomonte’s leases in the Butler Valley when they expire next year, according to a staff recommendation obtained by The Post. A decision has not been finalized. If Hobbs acts, a confrontation with the company could follow, with implications not just for foreign companies with interest in American natural resources but also for the future of agriculture as drought intensifies in the Southwest and cities clamor for rural water reserves.

The Saudi-owned farm has split the local community, where Holly Irwin, a La Paz County supervisor who has opposed Fondomonte’s presence for years, said that “foreign companies have come to take our water because they don’t have any left back home.”

But Fondomonte has unlikely allies, including a cattle rancher in the Butler Valley whose land abuts Fondomonte’s farm. Boyce Andersen said he generally is “an ‘America first’ type of person” but is now just as concerned about the valley’s water being “taken by Phoenix” instead of flowing to livestock and crops. He faulted Arizona, not the foreign-owned firm, for the grim trade-offs facing the state.

“Why did our government leadership allow this to happen?” he asked.

A Saudi conservation strategy

Fondomonte’s lush alfalfa fields represent a decades-old Saudi strategy.

An American engineer, Karl Twitchell, who cut his teeth in Arizona’s copper mines, served as an adviser to the first king of Saudi Arabia and led a U.S.-sponsored agricultural mission to the kingdom in 1942. That mission set in motion a years-long process of adapting desert farming methods honed in the American Southwest to similar conditions in Saudi Arabia.

Fondomonte’s parent company, Riyadh-based Almarai, was founded three decades later by a Saudi royal and businessman, Mohammed bin Saud Al Kabeer, and two Irish brothers. The food and beverage giant is still chaired by a member of the Saudi royal family. In 2011, it acquired Luxembourg-based Fondomonte, which was operating farms in Argentina at the time, capitalizing on rising global food demand.

The following year, the company incorporated Fondomonte Arizona and soon moved into La Paz County, one of the poorest and least-populated parts of the state. In 2014, it paid $47.5 million to purchase nearly 10,000 acres in Vicksburg, a town of about 500. In 2015, in the nearby Butler Valley, Fondomonte took over several agricultural leases, for the below-market rate of about $25 per acre. Those leases, totaling 3,500 acres of state land, will expire in February 2024 if not renewed.

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Fondomonte also expanded to California, eventually purchasing more than 3,000 acres across the border from Arizona, near the town of Blythe. Its farming operation there is built on another precious water source, the Colorado River, a key artery for several states that governments have allowed to dwindle to dangerously low levels amid hotter, drier conditions and chronic overuse by farming regions in the Southwest.


In Arizona, the company has farms in the Butler Valley and Vicksburg, while its California operation includes farmland near Blythe and a hay processing and storage facility in Calipatria.

Calipatria

Hay processing

HANNA ZAKHARENKO/THE WASHINGTON POST

In Arizona, the company has farms in the Butler Valley and Vicksburg, while its California operation includes farmland near Blythe and a hay processing and storage facility in Calipatria.

Calipatria

Hay processing

HANNA ZAKHARENKO/THE WASHINGTON POST

To advance its interests in Arizona, Fondomonte hired Jordan Rose, a lawyer and land-use specialist who leads one of the state’s top lobbying shops. Rose, a former finance chair of the Arizona GOP, helped run Ducey’s inaugural committee when he was elected governor in 2014. Ducey soon named her to a committee developing state groundwater policy, according to her website.

Rose later told an agribusiness trade association that Fondomonte “chose to invest” in La Paz County because of its favorable conditions for growing alfalfa, according to emails obtained through a public-records request. Those conditions include an average 310 sunny days per year and the ability to have a fresh cutting almost every month.

The Saudi firm’s arrival in Arizona showed how trade liberalization and improvements in transportation and logistics have allowed companies to control arable land all over the world and manage scarcity back home. Rising global food demand has put pressure on freshwater resources sucked from the ground in such large quantities that, according to a recent study, the Earth’s tilt has shifted.

In a 2014 corporate report, Almarai celebrated that Fondomonte’s expansion in Arizona put the company on track to import 100 percent of its animal feed — part of a “strategy for conservation of the Kingdom’s water resources.”

By contrast, Arizona groundwater is unregulated across rural swaths of the state. That includes the Butler Valley, bordered by the Buckskin Mountains to the northwest and the Harcuvar Mountains to the southeast, forming a 288-square-mile expanse known as a basin because of the water lacing underground sediment. Agriculture is possible in the valley, smack in the middle of the Sonoran Desert, thanks only to the water drawn through wells like soda through straws. Because of minimal natural recharge and scarce rainfall, water pumped from the basin is essentially mined, with no replacement.

The area is significant as shortages deepen because it’s one of the few basins from which water can be transported to growing urban areas. And the Butler Valley, where Fondomonte is the lone company leasing state land for agriculture, is key to planning because most of the land there is government-owned.

Arizona land planners raised alarms soon after Fondomonte’s arrival in the Butler Valley.

In the 2015 memo, state planner Schneeman and three others argued that Arizona was squandering a key water supply that could one day slake intensifying urban thirst.

A 2012 study had found that the basin held about 22 million acre-feet of water, or enough water to cover 22 million acres to a depth of one foot; but estimates have varied widely, with the volume also pegged at about 6.5 million. That would still be enough to supply all single-family homes in the Phoenix area for about 14 years. Whatever the exact supply, it was being sucked away every day by water-intensive crops.

A lot of money was on the line. The state was receiving about $50,000 a year by leasing the land to Fondomonte, the memo noted, but could make at least $1.2 million a year by selling the water to thirsty Phoenix. Such transfers are rare and procedurally complex, as well as deeply controversial, breeding resentment in rural parts of the state.

At the very least, the planners argued, Fondomonte should tell the state how much water it was pumping in the Butler Valley. Fondomonte, the memo advised, “may claim they are being unfairly singled out.”

The memo was addressed to Ducey’s land commissioner, Lisa Atkins, who did not follow its recommendations, Schneeman said. Kelly, the Fondomonte manager, said the company installed meters of its own accord but has not disclosed its consumption because its leases do not require such reporting.

Atkins said she could not remember the memo and declined to comment. Ducey, who recently launched a group promoting free enterprise, also declined to comment.

Two months later, as the Saudi-owned farm came under local criticism, Tom Buschatzke, the water resources director appointed by Ducey, published an op-ed telling readers of the Arizona Republic, “Don’t freak out about Saudi alfalfa.”

“Those folks have as much right as any other individual in the state of Arizona to grow their produce, grow their crops, sell them, export them,” he told the Associated Press at the time.

(Video: Erin Patrick O’Connor/The Washington Post)

Emails obtained through a public-records request show that Buschatzke received a note of praise from Rose, Fondomonte’s lobbyist. He thanked her, writing, “I know certain parties will continue to push at us on this.” Buschatzke declined to comment for this article.

Others in the state felt that Fondomonte was the one pushing — outmaneuvering understaffed agencies as it repeatedly made requests to add hay barns and employee accommodations while altering state land with new high-powered wells. Fondomonte’s leases entitle the company to reimbursement from taxpayers for certain upgrades — a sum that stands at about $7.4 million in the Butler Valley, company representatives say.

“My conclusion is that we should either cancel these leases or somehow get compensated for the staff time,” Chuck Vencill, a leasing specialist with the state’s land department, wrote to colleagues in 2016. He added that monetary penalties were “largely ineffective” because of the company’s wealth.

Kelly said the company’s upgrades were necessary for “a first-class farming operation with the best available technology.” He stressed that all improvements were approved by state officials and argued that the process was onerous only because the state “may not have been accustomed to its ag lessees being willing to invest in that level of improvement.”

Figuring out the value of Fondomonte’s farms falls to La Paz County’s assessor, whose findings determine how much the company pays in taxes that support public schools and emergency services in the hardscrabble area.

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County Assessor Anna Camacho and her small staff have struggled to keep up with Fondomonte’s upgrades, she said, because of infrequent access to the farms and the sophistication of the company’s equipment.

After a site visit in 2017, county appraisers decided that the cash value of the company’s operations had jumped from $7.8 million to $32.9 million. But Camacho said her office is still woefully undervaluing the company’s assets, on its owned and leased land alike.

Wells in particular are “extremely undervalued,” wrote one of her employees in 2019, in an email released as part of a public-records request. Handwritten notes on appraisal documents reflect difficulty understanding the fast-growing enterprise. “Housing?” a county official scrawled in pen on a valuation document for one parcel.

Eager for an accurate inventory of the company’s hay barns, Camacho took to the skies above Fondomonte’s farms in her husband’s Cessna plane last year to survey the property. She said she would like to audit all agricultural properties but does not have the resources to do so.

Fondomonte, whose consultants say the company has invested more than $270 million in its farms since arriving in Arizona, paid about $650,000 in taxes and other assessments to the county last year, records show. Kelly said Fondomonte has always been transparent with appraisers and pays its taxes “based on the assessed value of our assets.”

The company also is paying a modest rate to use state land. A 2018 study commissioned by the land department found that the market price per acre in La Paz County was $125, five times the amount Fondomonte was paying, according to a copy of the study, which was first reported by the Arizona Republic last year.

Current and former state officials said low land rents are not unique to Fondomonte and are meant to ensure that the land is leased and generates revenue. Kelly said Fondomonte has never negotiated rental rates but simply accepted the terms set by the state.

The real value of the land lies in the water underneath the desert terrain. Since 2015, state officials periodically have returned to the idea of asking leaseholders to report their water consumption, according to emails and interviews.

Repeatedly, they faced stiff opposition, not just from Fondomonte, but also from domestic farming and ranching interests, and from conservative state lawmakers, who believe water is a commodity controlled by individual property owners, not a resource to be managed collectively. Rusty Bowers, the former Republican speaker of the Arizona House, who was associated locally with his interest in water policy before becoming known nationally for resisting Donald Trump’s entreaties to overturn the result of the 2020 election in Arizona, said he was sympathetic to the opposition to metering and reporting water usage.

Farmers and ranchers, he said, worry that the state will one day divert water for public use. “Once it’s metered, it’s going to be taken,” he said.

As scarcity sets in, Fondomonte is working hard to show locals the advantages of having a wealthy neighbor.

Andersen, the rancher who leases the acreage surrounding Fondomonte’s Butler Valley farm, has come to depend on water trucked from the company’s Vicksburg land after a shortage declaration on the Colorado River meant he no longer was allowed to siphon water from a diversion canal snaking through his ranch.

“Saudi Arabia is hauling water into that tank right there for us,” said Andersen, in a denim work shirt and with white hair poking out from under a cowboy hat, as he gestured at a 10,000-gallon storage tank.

Later, he corrected himself: “They want me to say ‘Fondomonte.’” Company leaders active in Arizona are all American or European, and Andersen said he has never met one of the farm’s Saudi owners.

“I would have preferred it was an American rancher” using the land, he said. “But, truthfully, there wasn’t an American rancher who was rich enough to be able to do what these guys have done.”

The company also has used its resources to supplement deficient public services in the area, building goodwill in the tiny towns that surround its fields.

One town is called Love, named for a veteran of World War I. Another is named Hope, where a sign advises departing travelers that they’re “now beyond hope.” And then there’s Salome, where local legend tells of a woman by that name who walked barefoot on the hot desert floor, dancing to her destination and giving the town the slogan “Salome — where she danced.”

On a mountain peak overlooking each town is the first letter of its name, painted in bright white. The paint for the “S” in Salome was paid for by Fondomonte, according to emails released by Salome High School.

The emails show how the high school, home of the Frogs, benefits from Fondomonte. When the company promised a $2,500 donation, the school’s superintendent and former athletic director, Kari Avila, wrote, “I want to cry right now lol.”

The school helped identify prospective employees for Fondomonte — in warehouse, field, maintenance, welding and construction roles, as well as for office duties that required a “good work ethic,” as Fondomonte’s commercial director, Padraig Lawlor, wrote to Avila. Company managers sought out Spanish lessons through the school and gained permission to use the weight room. “We need to get fit,” Lawlor quipped in an email.

Avila declined to comment. Kelly said multiple senior company managers live in La Paz County and value their ties to the community. (They did not use the school weight room, he said.)

Fondomonte says it employs 225 people at its farms in Arizona, making it one of the largest private employers in La Paz County. The workforce is supplemented by dozens of seasonal workers brought in on temporary visas from Mexico and the Philippines.

Three current employees who work the company’s alfalfa fields in Vicksburg said they complete 10-hour shifts, from 7 a.m. to 5 p.m., six days a week, with no overtime pay.

“All employees are compensated fairly and equitably in compliance with all local, state and federal labor laws,” said Kelly, the general manager. “Fondomonte prides itself as a quality employer within the communities in which we operate and the wider agricultural sector, and we provide industry-competitive pay and benefits packages for our employees.”

Some employees live in a sprawling trailer park arranged along dirt roads stippled by cactuses. Residents of these trailers say they have faced regular water interruptions, requiring them to buy bottled water and haul buckets to wash themselves.

“We go to Salome and fill up gallons of water, and we shower with that,” said Sebastian Esparza, 15, who lives in the trailer park across the road from Fondomonte’s Vicksburg farm.

Problems are plaguing the town of Salome, too. The well at a budget motel there is dry, locals said.

The drought punishing Salome and other parts of the Southwest began in 2000 and has resulted in what experts say is one of the region’s driest periods in the past 1,200 years. The warming atmosphere has scorched landscapes, diminished the snowpack and reduced the amount of runoff that makes it into the major reservoirs that sustain Arizona and Southern California. Although this past winter was unusually wet, scientists predict that water shortages will intensify as the climate continues to warm.

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Local engineer Jim Downing, who manages the distribution of electricity to farms in the area, said Fondomonte has been unfairly singled out and cannot be blamed for all nearby water shortages, because different valleys have distinct aquifers. But pumping by Fondomonte and its predecessors in Vicksburg has affected adjacent wells, Downing said.

“They can impact other people’s wells, and they have,” he concluded.

Kelly, the Fondomonte manager, said the company doesn’t pump water in the towns with the most acute shortages and so can’t be blamed for interruptions there. “Water in the Southwest has always been an emotional topic, and we understand some individuals in the media and politics find benefit in blaming Fondomonte for regional water challenges,” he said.

The company’s foreign ownership adds to the outrage some locals feel. Andy Granger, a retired machinist stopping for groceries in Salome, said his view of Fondomonte “sounds racist” but can be summed up this way: “foreign people coming in and tapping into our resources and making a profit.”

Local anger is reaching a boiling point, warned Steve Hilsz, a former telephone repairman. As more and more people find their wells drying up, he said, “we’re going to have civil war out here.”

The community’s anger is channeled by Irwin, a Republican and one of three elected supervisors in La Paz County. Because revenue generated from state land goes toward public education and other beneficiaries, the “discounted rate they’re getting on those leases takes away from the education of our kids,” she said during an interview at a diner in Salome.

Fed up, she sought an investigation last summer by the state’s then-attorney general, Mark Brnovich, a Republican.

Days later, Brnovich’s office assigned La Paz’s county attorney to review the complaint, according to emails released as part of a public-records request. But a deputy county attorney, Jason Mitchell, told The Post that the office did not act. “Unfortunately, we were not able to look into the issues since, as a small office, we lacked the resources and an investigator to thoroughly do so,” he wrote in an email.

Irwin soon gained a new ally. During a campaign news conference last summer outside the state land department, Kris Mayes, a Democrat running to succeed Brnovich, vowed to investigate Fondomonte’s leases.

“We can’t afford to do dumb things with our water anymore,” Mayes, who took office in January, said in an interview. “And allowing a Saudi-owned corporation to stick a straw in the ground and pump millions of gallons of water to grow alfalfa for their cows in the Middle East is nothing short of outrageous.”

Fondomonte also mobilized. In August, Rose, the lobbyist, emailed what she called “some facts about Fondomonte” to an agribusiness trade association. She ticked through details of the company’s conservation methods and its impact on the regional economy.

“The fact that this farm has been singled out over all other similar sized State Land Dept farm leases that are sending crops overseas or to other parts of our country seems xenophobic at best,” she wrote.

This year, Fondomonte commissioned an economic and fiscal impact report from a Scottsdale-based consulting firm, according to records obtained by The Post. Fondomonte’s annual business activities in Arizona and California, the memo asserted, support 2,761 jobs, nearly $173 million in wages and more than $475 million in economic activity.

The company also stepped up its outreach to state lawmakers. Emails show that former congressman John Shadegg (R-Ariz.), a lobbyist newly hired by Fondomonte, sought a meeting in January with the chair of the state House’s natural resources committee, saying he was “assisting Fondomonte Arizona in its efforts to correct the misrepresentations that have been made.”

Shadegg did not respond to a request for comment, and Rose referred questions to the company.

When Hobbs took office as governor in January, she signaled that she would take on Fondomonte. In her State of the State speech that month, she pointed to a “Saudi Arabian conglomerate pumping local groundwater nearly unchecked in La Paz County” as evidence of a need to overhaul the state’s approach to groundwater management.

“We all know that’s not right,” she said.

Fondomonte took notice. Kelly, the general manager, sent a letter to the governor the following month warning her against targeting Fondomonte.

“Hasty decisions, based on misinformation, could drive Fondomonte out of Arizona and could imperil operations of all of the other farms operating with similar leases around the state,” he wrote. “Fondomonte would continue its operations in other states or other parts of the world, but hundreds of Arizona jobs and positive economic input would be wiped out and the negative implications for Arizona’s agriculture industry will be enormous.”

Meanwhile, Mayes, the new state attorney general, was putting pressure on other state agencies. During a Feb. 17 meeting, described by people present, she sharply criticized the leadership of the state land department, asking, as one person recalled, “What have you been doing for the past eight years?”

In April, the land department wrote to leaseholders in the state’s transport basins saying it was conducting an analysis at the governor’s request and asking them, at long last, to provide detailed information about their water usage. At first, Fondomonte refused, responding in May that its leases did not require the company to track or disclose water usage.

But this time, Arizona’s land department insisted. On June 21, the state replied that it had the authority to obtain such information and noted that other leaseholders had voluntarily complied. The state gave Fondomonte nine days to release the data, vowing to “pursue any and all remedies,” even possibly “cancellation of your Leases.”

Fondomonte relented, telling the state that it had used 16,415 acre-feet of water last year at its farm in the Butler Valley. That’s enough to cover about 12,500 football fields with a foot of water. But Kelly said the amount is as much as a quarter less than the quantity used by the company’s predecessor in the valley.

The back-and-forth could be a prelude to a bigger break as the governor’s office draws up plans not to renew the company’s Butler Valley leases, specifically citing the importance of the basin’s groundwater as a backup for Arizona’s population centers. The company would continue to own land in Vicksburg and hold a lease in that area that runs until 2031.

The plans, which have not been finalized, would impose additional changes in transport basins, including the short-term extension of other leases combined with rent hikes, metering requirements and charges for water management. The goal, documents show, is to address the political anger over Fondomonte’s leases while not alienating other segments of the agricultural community.

The governor’s spokesman, Christian Slater, declined to comment on discussions about Fondomonte but said Hobbs was pursuing a “comprehensive and aggressive approach to managing our state’s water resources.” Kelly said the company was looking forward to continued discussions with the state.

The planning documents indicate that the governor’s office doesn’t know exactly how much water remains in the Butler Valley. But the documents say the results of a new study are imminent.

Schneeman, the state planner who first raised his concerns about Fondomonte in 2015, said he feared that any move now may be too late, after the state failed for years to put the water to its best use.

“That use,” he said, “would have been to conserve for the future.”

Alice Crites and Andrew Ba Tran contributed to this report.

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